Question

For a corporate distribution of cash or other property to a shareholder, when does dividend income or a return of capital result?

A) Dividend income results when the distribution exceeds the shareholder's basis.
B) Return of capital results when the distribution exceeds the shareholder's basis.
C) Dividend income always results.
D) Return of capital always results.

Answer 1

Dividend income or a return of capital can result from a corporate distribution, depending on the distribution and the shareholder's basis.

Step-by-step explanation:

For a corporate distribution of cash or other property to a shareholder, dividend income or a return of capital can result depending on the distribution and the shareholder's basis.

A) Dividend income results when the distribution exceeds the shareholder's basis. This means that if the distribution received by the shareholder is greater than their initial investment or basis, it will be considered as dividend income.

B) Return of capital results when the distribution is less than or equal to the shareholder's basis. If the distribution received by the shareholder is less than or equal to their initial investment or basis, it will be considered as a return of capital

Therefore, both dividend income and return on capital can result from a corporate distribution depending on the comparison to the shareholder's basis.